Labor accords set new course for United

The last three unions at United Airlines ratified new, six-year contracts Tuesday, allowing the carrier to finally achieve its goal of slashing labor costs by $2.56 billion a year.

It's a watershed event for United, which has been struggling to convince investors and employees that it has a viable future since its Chapter 11 bankruptcy filing in December.

Now the ball is in management's court, union advisers and members said.

"Labor is putting the tools in management's tool box," said William Swelbar, a financial adviser to United's flight attendants and a managing director of Eclat Consulting in Arlington, Va. "Hopefully, they will use those tools to allow United to emerge and prosper."

But it was a slightly closer call with the airline's 12,000 mechanics, who have been some of the feistiest critics of United's management. Their new contract passed with 70 percent voting in favor. Both the ground workers and mechanics are taking a 13 percent pay cut and giving United more flexibility to use part-time workers and to outsource jobs.

"Now, United has the cost savings needed to successfully restructure and emerge from bankruptcy as a competitive and premier airline in our industry," said Greg Davidowitch, head of the flight attendants union at United.

But the approval is no cause for celebration, he added, because the reduced wages and benefits "will have a harsh effect on our work lives and our families."

The significant amount of "no" votes wasn't much of a surprise to union officials. Many United workers were angered by the secret executive bonus and pension plans revealed at American Airlines after union workers ratified wage cuts by a slim margin to keep American out of bankruptcy.

United praised the unions for swallowing a bitter pill.

"Their difficult choices have given additional momentum to our collective efforts to transform United into a viable, competitive airline and to build a more secure future for our employees," the company said.

Securing the agreements was never a slam dunk.

Dave Prost, a 19-year United ramp serviceman, voted "yes" Tuesday because "I feel the company holds all the cards right now. And I'd rather have any kind of contract than no contract at all."

But fellow ramp serviceman Gary Capra said he voted "no" because "if they're going to take this from me, they'll have to do it in court. ... I've given enough since 1994."

That's the year pilots and machinists used pay cuts to purchase 55 percent of United's stock through an employee stock ownership plan, stock that became virtually worthless after the bankruptcy filing.

Still, the ratifications were another step forward for beleaguered United, which has struggled this spring because of the war in Iraq and the outbreak of SARS, or severe acute respiratory syndrome.

United's powerful pilots union already has ratified a new contract that reduces wages by 30 percent, saving United $1.1 billion annually. The airline's meteorologists and flight controllers also have approved new contracts, while pay and benefits for salaried and management workers are shrinking by $330 million a year.

Since seeking bankruptcy protection, the nation's second-largest carrier has been frantically trying to lower its costs and return to profitability. The major component of that was chopping its payroll, the single highest fixed cost for an airline.

Glenn Tilton, United's chief executive, also believes United must create a discount carrier within its network to better compete with low-cost rivals such as Southwest Airlines. The new union contracts allow Tilton to proceed with that plan.

In return, union employees will participate in a profit-sharing plan, receive incentive bonuses and share in the equity of a reorganized United.

"Now they've had a vote, a say. The employees feel somewhat empowered," said John Pincavage, president of Pincavage & Associates, a Westport, Conn.-based financial adviser to airlines. "It's probably a plus for employee morale, although maybe not a huge one. This is not a happy time for employees, but if they want to have jobs, they've got to do this."

If any of its unions had rejected the new contracts, United had the option of asking U.S. Bankruptcy Judge Eugene Wedoff to toss out the old collective bargaining agreements and impose new wage scales and working conditions.

But the risks accompanying that strategy are many, bankruptcy experts say. An ugly court fight would have further alienated employees at a time when United desperately needs them to provide top-drawer customer service. It also potentially would have scared off investors who will be needed to finance United's eventual exit from Chapter 11.

"United's last, best chance of surviving is one where these votes are approved, and management can turn their attention to other things," said Douglas Baird, bankruptcy law professor at the University of Chicago Law School.

Despite the turbulence surrounding recent union voting at American Airlines, United Airlines is expecting a relatively smooth ride as three unions vote Tuesday on whether to ratify painful concession deals worked out during the last few months.